Survival Tactics of the Fittest.

March 12, 2013

Songwriter Leonard Cohen said that success is survival. American entrepreneurs have lived that creed since 2008.
The financial crisis. The Patient Protection and Affordable Care Act. The Dodd-Frank Act. Budget Deficits. Sovereign debt crises. The fiscal cliff. Sequestration. To varying degrees, each has compounded the difficulties facing small businesses since 2008.
According to Census Bureau data, nearly 240,000 small businesses failed between 2008 and 2010. Many entrepreneurs continue to see treacherous terrain ahead.
Yet, cost-cutting and innovation have enabled small businesses to survive, and sometimes prosper. The road ahead remains rife with challenges.
Given recent regulatory changes, the following tactics can help proactive entrepreneurs to better position their companies ahead of the competitive curve.
Healthcare Reform - Challenges and Opportunities
The Patient Protection and Affordable Care Act (PPACA) represents the nation's largest ever healthcare overhaul. For small businesses, it made rough seas more turbulent.
Was reform necessary? Yes. But, as businesses grapple with a leaner consumer and commercial spending environment, they now must also contend with the potential costs and uncertainties of healthcare reform.
The PPACA dictates that, beginning in 2014, every company with more than 50 employees must provide health insurance coverage. Should employers choose not to, they face penalty taxes of $2,000 per employee over the thirty employee minimum. In other words, a 65-employee firm choosing not to provide insurance will pay penalty taxes of $70,000 (65 minus 30 x $2,000).
Usually, the equation is not so simple. Firms recognize that the provision of healthcare insurance entails expenditures aside from premiums. Choosing the right coverage. Enrolling employees. Completing paperwork. It adds up.
In regards to health insurance, companies with more than 100 employees have traditionally received preferable treatment.
Technology allows larger companies to avoid the time-consuming pursuits of employee education and enrollment. Both are completed online. Further, with annual premium increases, technology directs executives to similar plans with lower premiums - saving time and money.
Today, some benefits firms are dedicated to helping clients more effectively navigate the healthcare landscape. Technology treats small firms like their larger counterparts. Enrolling and educating employees online. Pointing them towards less expensive plans. Given today's complexities, companies must find firms capable of providing cutting edge technology, direction and expertise. All of which translates to time and money.
Additionally, small businesses should consider the following two options.
Self-insured health plans allow employers to assume the financial risk of health insurance rather than transferring that risk to an insurance company. For companies willing to assume some of the risk, self insuring removes many traditional insurance expenses.
Further, defined contribution plans enable companies to pay employees a fixed annual amount, which is used to buy suitable insurance coverage. By fixing annual premium outlays and delegating decision making and accountability, small businesses save time and money.
401(k) Fee Disclosure - Getting More for Less
As of July 1, 2012, the Department of Labor began requiring that all businesses offering retirement plans utilize a more transparent, standardized approach to disclosing fees.
Suddenly, business owners and their employees could see what the 401(k) plan's investment advisor, third-party administrator and record keepers were paid. The response? A sea change in the means by which companies view services rendered for fees paid.
Proactive investment firms began offering access to an all-index retirement plan. The benefit? Clients were able to save 25-to-50 percent of plan costs by replacing mutual funds with index funds. The average mutual fund cost around 1.10 percent, while the similar index fund might cost only 0.10 percent - a one-percent savings.
Further, many independent firms (RIAs) will provide financial planning to 401(k) participants - a huge benefit, given that most large brokerage firms will not provide planning in 401(k)s. They simply don't want to assume the responsibility. Many RIAs provide willing participants with financial planning assistance, as well as personalized financial websites - like Quicken on steroids.
In an age where Wall Street refuses to work with clients having less than $250,000 in assets - most of the country - RIAs can provide 401(k) participant with cost savings, translating to better returns, as well as a much needed financial advisory relationship.
Captive Insurance Companies - Self-Insurance w/ Tax Benefits
Captive insurance companies (CIC) allow organizations to self insure the property and casualty risks for which they pay expensive insurance premiums year after year. Currently, the Ohio state legislature is considering legislation that will make Ohio a domicile state for captive insurance companies.
Traditionally, CICs have provided companies with a means of deferring risk and saving on their property-and-casualty expenses. Ideally, companies fitting a certain profile could establish a separate, wholly-owned insurance company by which they could manage many of their risks. Medical groups, construction, manufacturing and transportation companies, to name a few, would establish CICs, pay premiums to their own insurance companies, self insure risk, and possibly incur tax benefits (ask your tax advisor).
While CICs had to be incorporated in other states, the risk management and tax benefits - both of which need be discussed with tax advisors - were attractive enough that Vermont alone had over 900 CICs as of July last 2012.
Now, with Ohio potentially allowing the in-state incorporation of CICs, there will likely be a much wider audience for these risk-management vehicles.

The Bottom Line

While the landscape remains rocky, opportunities for proactive business owners abound. For the cost of an education, entrepreneurs can perform cost-benefit analyses that determine which, if any, of these ideas might add value.
Even with today's headwinds, entrepreneurs see a future that is rich with opportunity. Perhaps these tactics can keep the wind at their backs.

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